Here’s one high-tech company where dedication to customers borders on the loony.

By Alison Overholt6 minute Read

Joey Parsons is wearing a straightjacket, and he’s surrounded by a crowd applauding his commitment. Not to a mental institution, but to providing the best service to his company’s customers. Parsons, 24, has just won the Straightjacket Award, the most coveted employee distinction at Rackspace, a San Antonio-based Web-hosting company. His colleagues voted him March’s winner of the award, which recognizes the employee who best lives up to the Rackspace motto of delivering “fanatical support,” a dedication to customers that’s so intense it borders on the loony.

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It’s a far cry from the Rackspace that customer-care vice president David Bryce found when he arrived in 1999. The company manages the technology back end of Web sites for clients as diverse as e-tailers, game sites, and online ad agencies–folks for whom having a reliable site is obviously critical. Yet the tech-support staff appeared to feel no urgency about addressing problems, Bryce says, and sometimes seemed openly hostile to customers (sound familiar?).

Bryce was hired to convert Rackspace–born at the height of the tech boom out of the dorm rooms of three college students –into an organization motivated by service, not just by technology. “We knew what great service looked like, but we didn’t know how to build it,” says managing director and cochairman Morris Miller. After spending a few weeks observing customers and employees alike, Bryce figured that he did. “In the dictionary, under ‘fanatic,’ it says ‘overly zealous or obsessed with,’ ” says Bryce, who had impressed Miller with the superb service organization he created at a startup cleaning company called USA EnviroClean. “I wanted that to be us, so providing fanatical support became our internal mantra. I held a meeting and said, ‘This is going to be our focus from now on.’ “

Bryce, the cofounders, and the original Rackspace investors all remember the reaction to that statement the same way: dead silence. “It was offensive to some people,” founder Richard Yoo says. “I had always assumed that with any technical service, as long as things are up and running, our job is done.” Yoo and others were also skeptical of how well Bryce, then a 27-year-old janitorial entrepreneur, would understand, manage, and motivate a staff of techies.

Bryce started with a few simple rules: Criticizing a customer is a firing offense. Be reliable. No news is not good news–communicate frequently with customers. Look for ways to exceed expectations and make customers say “wow.” Remove hassles–make it easy for customers to do business with Rackspace. A few months later, the very first gift–a basket of sausages and chocolates–arrived from a customer. “It was a simple gift basket, but it convinced everyone that David was right,” Yoo says.

New programs and structures followed. Instead of siloed departments, “Rackers” (as employees are known) now sit in eight pods–clusters that include a team leader, two to three account managers, a billing specialist, and several tech-support specialists. Each team serves a group of customers sorted by the size and complexity of their projects. If an account manager is on the phone with a customer who is confused about a bill, the billing specialist for that account is just across the desk and available to help. If one technician is stumped, another who is also familiar with that customer sits next to him and can just jump in when needed.

The structure is a big hit with customers such as advertising giant J. Walter Thompson, which, along with Rackspace, manages the Web site for one of its most important accounts, the U.S. Marine Corps. “When I make a phone call, I get the same person every time, and he knows my account,” says JWT IT manager Chris Gregory, who handles the Marines’ account. “If I have a problem at 3 a.m., someone from the team has the shift, and they usually have things fixed in 5 or 10 minutes. They even call me once a month just to go over relevant usage statistics and performance metrics on my account. I’ve never experienced that kind of dedication with any other provider before.”

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What kind of dedication? Simon Newman, a 25-year-old major accounts manager at Rackspace, recalls one Saturday night last February when he was on a date with his fiancee, who had been on a medical-school rotation at a hospital five hours away. At 10 p.m., his cell phone rang with news of a customer whose server had been hacked. A consultant who manages Web sites for other businesses, the customer was terrified of losing his clients. “He was pretty much in tears, so we headed into my office, and I just talked to him and tried to calm him.” Newman coordinated what would normally be a 24-hour job–building a new server–in just 4. Instead of waiting for a courier to deliver the server to the data center across town, Newman drove it there himself. Then Rackspace data-center technicians worked through the rest of the night with the customer to migrate his data to the new server and get his business back up and running. Meanwhile, Newman’s fiancee slept on the floor, next to his desk. “It wasn’t exactly the night I was envisioning,” Newman says ruefully.

Rackers are motivated to provide fanatical service not because of a catchy motto, but because each team is treated as its own separate business, with responsibility for its own P&L. Every month, employees can earn bonuses of up to 20% of their monthly base salaries depending on the performance of their units by both financial and customer-centric measures: How low is customer turnover? How much did existing customers expand their business with the company? How many customers referred new business to Rackspace? And how profitable was the group overall? Each quarter, employees re-ceive additional bonuses if companywide performance goals are reached.

“That’s a serious incentive,” says Frederick Mendler, 29, who leads two teams that together serve 1,200 medium-sized customers and who is responsible for more than $15.6 million of revenue. “At most companies, these policies are just lip service, but that’s our bonus you’re talking about.”

Fanaticism has its rewards for Rackspace, too. The e-tastrophe of the past few years has decimated the ranks of dotcoms and driven once-powerful rivals such as Exodus Communications into bankruptcy. Yet privately held Rackspace has posted net profits since 2002; its revenue grew 50% in 2003, to $58.6 million; and it has 5,500 customers, up from 56 in 1999. Fanatical customer service may be mildly nuts, but there’s clearly a method to Rackspace’s madness.

Sidebar: Finding Your Inner Fanatic

4 Ways Rackspace Creates an Obsessive Service Culture

Measure it. Customer service is reflected in the time it takes to resolve a problem, in the number of customers that renew or expand their business with your company, and in the number of referrals your company gets from existing customers. Rackspace receives 50% of its new business from customer referrals.

Pay for it. Rackspace employees’ monthly bonuses depend on how well they serve customers. David Bryce, the company’s vice president of customer service, is part of the senior executive team, and every job candidate in his division interviews with him, demonstrating the company’s commitment to great service.

Motivate it. Public recognition of achievement–customer compliments posted on the wall, fanatic signs hanging above the desks of winners of the straightjacket award–gives individual Rackers a status boost among their peers, and something for everyone to aspire to.

Enforce it. If you’re serious about service, then rudeness to a customer is inexcusable. At the same time, if employees are committed to providing great service, they deserve unconditional management support. This year, three employees left because they didn’t “get” Rackspace’s service ethic–and one customer was fired for being abusive to Rackspace employees.

Discussion Guide

Interested in further exploring some of the ideas and issues in this article? Consider starting a Fast Companyreading group. Here are some possible conversation catalysts:

Does your company’s IT staff fit into the stereotype? Why does this stereotype persist? What obstacles exist in implementing a customer service program like Rackspace’s within your IT department? Could it be implemented elsewhere, instead or in addition to IT? How would you go about measuring tangible results?

A version of this article appeared in the June 2004 issue of Fast Company magazine.